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hllb 


The  Basis  of  Better  Times 

An  Address  by 
JAMES  S.  ALEXANDER 

President,  National  Bank  of  Commerce  in  New  York 


I am  very  glad  of  the  opportunity  to  meet  with  the 
National  Association  of  Cotton  Manufacturers  to  dis- 
cuss business  conditions.  Your  association  stands  as 
one  of  our  most  important  and  influential  business  or- 
ganizations. It  has  won  this  recognition  because  of  the 
true  emphasis  it  has  placed  on  business  fundamentals 
and  because  of  the  importance  of  its  contribution  to 
progress  in  cotton  manufacture,  both  in  the  technical 
aspect  of  the  industry  and  in  that  of  business  adminis- 
tration. The  country  is  fortunate  in  having  in  one  of 
its  greatest  industries  organized  business  leadership 
such  as  your  association  represents. 

Never  before  have  the  nation  and  the  world  been  so 
greatly  in  need  of  sound,  broad-visioned  business  lead- 
ership. The  business  outlook  continues  to  hold  serious 
problems  that  demand  our  best  thought.  Already  sub- 
stantial progress  has  been  made  toward  a return  to 
sounder  conditions  but  the  time  has  not  yet  come  for 
relaxation  of  caution.  We  can  say  with  utmost  confi- 
dence that  so  far  as  the  United  States  is  concerned  the 


A 


3 


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ddress  before  the 
National  Association  of 
Cotton  Manufacturers 
at  Copley-Plaza  Hotel 
Boston , Massachusetts , 
April  22nd,  I p 2 1 . 


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AlZ'o 


The  Basis  of  Better  Times 

An  Address  by 
JAMES  S.  ALEXANDER 

President,  National  Bank  of  Commerce  in  New  York 


f 

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rv 


I am  very  glad  of  the  opportunity  to  meet  with  the 
National  Association  of  Cotton  Manufacturers  to  dis- 
cuss business  conditions.  Your  association  stands  as 
one  of  our  most  important  and  influential  business  or- 
ganizations. It  has  won  this  recognition  because  of  the 
true  emphasis  it  has  placed  on  business  fundamentals 
and  because  of  the  importance  of  its  contribution  to 
progress  in  cotton  manufacture,  both  in  the  technical 
aspect  of  the  industry  and  in  that  of  business  adminis- 
tration. The  country  is  fortunate  in  having  in  one  of 
its  greatest  industries  organized  business  leadership 
such  as  your  association  represents. 

Never  before  have  the  nation  and  the  world  been  so 
greatly  in  need  of  sound,  broad-visioned  business  lead- 
ership. The  business  outlook  continues  to  hold  serious 
problems  that  demand  our  best  thought.  Already  sub- 
stantial progress  has  been  made  toward  a return  to 
sounder  conditions  but  the  time  has  not  yet  come  for 
relaxation  of  caution.  We  can  say  with  utmost  confi- 
dence that  so  far  as  the  United  States  is  concerned  the 


O 

lit 


3 


credit  and  banking  situation  is  well  in  hand.  Our  cur- 
rency is  sound.  Investment  is  healthy.  The  fever  of 
speculation  has  subsided.  We  are  not  in  a condition  of 
general  over-production.  Many  aspects  of  maladjusted 
business  have  proceeded  far  toward  readjustment. 
Were  these  ordinary  times,  and  if  we  could  consider  the 
United  States  without  reference  to  the  rest  of  the  world, 
we  could  say  that  the  foregoing  are  satisfactory  evi- 
dences that  the  worst  is  over  and  revival  may  be  looked 
for. 

But  there  exist  factors  that  make  the  present  period 
one  requiring  an  unusual  degree  of  prudence,  foresight 
and  patience.  There  are  influences  of  prime  impor- 
tance to  our  business  future  that  are  not  under  our  own 
control  because  what  happens  in  Europe  now  affects  so 
powerfully  the  course  of  events  in  America.  The  two 
have  become  inseparable. 

In  this  connection  I do  not  refer  particularly  to  the 
volume  of  our  export  trade.  It  could  not  reasonably 
have  been  expected  that  our  foreign  trade  could  be 
maintained  in  the  volume  reached  during  the  past  few 
years.  Therefore  we  are  prepared  to  view  with  less 
alarm  the  great  shrinkage  in  the  volume  of  our  trade 
with  Europe.  Blind  stimulation  of  foreign  trade  is  not 
desirable.  Stability  in  trade  is  desirable.  It  is  stability, 
not  quantity,  that  spells  healthy  trade,  whether  foreign 
or  domestic.  We  must  look  beyond  our  trade  figures 
and  have  regard  to  internal  conditions  in  other  nations. 
The  picture  we  see  in  Europe  emphasizes  the  need  of 
continued  caution  in  America. 

In  the  United  States  the  man  who  recognizes  and 
adapts  himself  to  conditions  as  they  are,  who  conducts 


4 


his  business  on  conservative  lines  and  is  willing  to  ac- 
cept moderate  profits  should,  after  he  is  freed  of  the  in- 
cubus of  former  high  prices,  be  reasonably  successful. 
But  the  business  man  who  is  impatient  of  caution,  seeks 
big  profits  and  takes  big  risks  courts  disaster.  The 
weight  of  chance  is  against  speculative  undertakings. 
These  are  not  times  to  trifle  with. 

But  just  as  emphatically,  they  are  not  times  to  be 
frightened  at.  There  are  specific  reasons  for  confidence 
that  business  in  many  of  its  major  aspects  has  passed 
the  period  of  most  unsatisfactory  conditions.  The  peak 
of  inflation  of  banking  credit  was  doubtless  reached 
during  the  seasonal  requirements  of  last  autumn.  Pres- 
ent prospects  contain  no  cause  for  anxiety  as  to  the 
availability  of  credit  in  sufficient  volume  to  serve  all 
proper  requirements,  and  at  rates  which  will  maintain 
a constructive  money  policy. 

Notable  improvement  has  also  developed  in  respect 
to  the  serious  maladjustment  between  the  production 
and  consumption  of  current  goods.  This  maladjust- 
ment was  caused  by  misjudgment  as  to  Europe’s  con- 
tinued purchases  here,  by  the  sudden  retrenchment  from 
extravagance  of  our  own  people  and  by  the  coming  on 
the  markets  of  unexpectedly  large  volumes  of  goods 
previously  withheld  for  speculation.  The  sudden  and 
violent  changes  precipitated  by  these  developments 
created  a serious  situation,  one  of  the  most  menacing 
aspects  of  which  was  the  wholesale  cancellation  of  con- 
tracts in  both  our  foreign  and  domestic  trade.  This  re- 
sulted in  a mass  of  distressed  goods,  constituting  a 
problem  which  still  exists,  but  its  most  serious  phases 
are  probably  already  known. 

5 


Looking  more  particularly  at  conditions  in  the  spe- 
cific trade  which  you  represent,  there  are  some  signifi- 
cant elements  of  betterment.  Although  the  supplies  of 
raw  cotton  in  the  United  States  are  today  very  large,  it 
is  a particularly  fortunate  circumstance  from  your  point 
of  view  that  the  stocks  at  the  mills  are  well  below  nor- 
mal. Manufacturers  are  therefore  in  the  position  of 
being  able  to  buy  their  new  supplies  in  an  easy  market. 

Another  cause  for  encouragement  is  the  increased 
activity  that  has  taken  place  in  the  more  staple  lines  of 
cotton  manufacture  during  recent  months.  A signifi- 
cant feature  is  the  steadiness  in  the  development  of  this 
improvement  since  the  low  point  was  reached  last 
December. 

The  Cotton  Export  Trade  Situation 

It  should  be  recognized,  however,  that  the  present 
export  situation  for  the  American  cotton  manufacturer 
is  not  what  might  be  wished.  In  the  period  from  1914 
down  through  1920  exports  of  cotton  goods  increased 
at  a more  rapid  pace  than  did  total  production,  so  that 
the  export  trade  came  to  occupy  a position  of  increased 
importance  in  relation  to  domestic  trade.  But  at  pres- 
ent our  foreign  markets  are  over-stocked  with  cotton 
goods  which  were  contracted  for  at  the  high  price  levels 
of  last  year.  Coincidently  the  buying  power  of  our  chief 
foreign  cotton  goods  customers  in  South  America, 
Africa,  India  and  China  has  suffered  because  those 
countries  lack  markets  for  their  raw  products. 

In  view  of  these  conditions  in  the  export  field,  our 
own  domestic  situation  offers  the  best  market  for  cot- 
ton goods.  Although  conditions  here  are  not  satisfac- 
tory, particularly  in  respect  to  fine  fabrics,  reports  indi- 

6 


cate  that  standard  staple  goods  used  by  the  great  mass 
of  people  are  selling  well.  The  country  is  not  greatly 
over-stocked  with  cotton  goods,  but  here,  as  in  the  for- 
eign markets,  one  of  the  basic  aspects  of  the  problem  is 
reduced  purchasing  power  of  the  public,  caused  by  un- 
employment, caution  in  buying  and  by  the  decline  of 
prices  for  raw  products.  This  latter  factor  has  particu- 
larly affected  farmers  and  other  producers  of  basic  ma- 
terials. This  situation  has  not  yet  been  met  by  an 
equivalent  reduction  in  the  prices  of  products  which 
they,  as  consumers,  buy,  so  that  the  cost  of  living  in 
respect  to  them  has  not  yet  been  readjusted. 

In  this  connection  cotton  manufacturers  are  to  be 
commended  for  the  courageous  way  in  which  they  have 
cut  prices.  The  great  declines  that  have  taken  place  in 
the  wholesale  prices  of  cotton  goods  have  brought  the 
reduction  in  the  price  of  the  great  staple  necessity,  cot- 
ton, one  step  nearer  the  consumer. 

But  there  are  still  serious  obstacles  to  the  fulfillment 
of  this  movement  for  which  the  manufacturer  is  not  to 
blame.  The  resumption  of  normal  business  depends 
upon  the  establishment  of  prices  on  levels  in  keeping 
with  a maximum  of  effective  demand.  This  cannot  be 
accomplished  while  retailers,  particularly  the  smaller 
dealers,  still  refuse  to  reduce  their  prices  and  while  the 
cost  of  labor  resists  full  readjustment.  Retailers  must 
come  to  see  that  it  is  better  to  have  a large  turnover  at 
lower  prices  than  to  have  too  low  a turnover  at  prices 
based  on  the  cost  of  their  goods  on  hand.  Labor  also 
must  come  to  see  that  it  is  better  to  work  for  lower 
wages  than  to  insist  on  high  wages  and  be  out  of  work. 
Adoption  of  these  principles  will  bring  prices  into  co- 


ordination  with  the  present  purchasing  power  of  the 
general  public.  Thus  would  a wholesome  stimulus  to 
business  be  provided.  The  remedy  is  not  to  be  found 
in  easier  credits  or  cheaper  money,  which  might  serve 
as  an  artificial  but  temporary  stimulant,  creating  a sit- 
uation worse  than  the  present  one. 

The  Use  of  Banking  Credit 

These  are  some  of  the  significant  features  of  the  cot- 
ton manufacturing  trade  as  I see  it.  It  is  plain  that  en- 
couraging factors  exist,  but  other  important  elements 
tend  to  retard  the  establishment  of  stability.  It  is  es- 
sential that  bankers  and  business  men  see  conditions  in 
respect  to  trade  through  the  same  eyes.  Their  funda- 
mental interests  are  identical  and  can  be  best  served  on 
the  basis  of  a common  understanding. 

The  basis  on  which  banking  can  cooperate  with  busi- 
ness during  this  period  of  readjustment  demands  care- 
ful statement.  We  must  frankly  recognize  as  a matter 
of  principle  that  where  capital  has  been  impaired  it  can- 
not be  made  good  by  the  substitution  of  banking  credit. 
In  other  words,  credit  arrangements  must  be  in  keeping 
with  present  assets,  which  as  a general  proposition 
means  a revision  downward. 

Also  the  availability  of  credit  must  depend  squarely 
and  without  equivocation  on  the  individual  position  of 
the  borrower.  No  man  is  entitled  to  banking  credit 
unless  the  business  ends  to  which  he  intends  to  put  it 
contain  in  themselves  elements  insuring  his  financial 
ability  to  repay. 

Any  other  policy  than  that  indicated  by  these  limi- 
tations would  mean  an  inflated  state  of  credit  and  an 


8 


unsound  banking  situation.  Any  other  policy  would 
retard  the  sound  readjustment  of  business  and  perpetu- 
ate an  expansion  which  cannot  and  should  not  be  main- 
tained. 

It  is  a fortunate  circumstance  which  should  be  em- 
phasized that  a lower  price  level  makes  possible  the  con- 
duct of  business  adequately  on  a contracted  base.  It 
will  require  less  money  to  do  business  on  lower  price 
levels.  Also  the  greater  conservatism  which  character- 
izes business  today,  with  quicker  turnover,  and  shorter 
selling  terms,  lessens  the  volume  of  credit  required.  A 
heavy  drain  on  credit  resources  during  the  past  few 
years  was  the  introduction  into  the  chain  of  distribution 
of  an  unnecessary  element  of  speculative  middlemen, 
who  for  the  most  part,  served  no  economic  purpose. 
They  have  been  largely  eliminated  by  rapidly  falling 
commodity  prices,  but  complete  elimination  of  those 
elements  in  our  economic  life  which  do  not  serve  an  effi- 
cient purpose  is  desirable. 

In  the  development  of  these  factors  we  will  progress 
toward  a new  normal  for  doing  business.  It  is  a narrow 
view  of  the  intrinsic  character  of  business  that  compares 
it  too  closely  to  standards  established  in  other  years  and 
attempts  to  fix  a time  when  we  can  say  that  it  is  in  con- 
formity with  those  standards.  When  business  ade- 
quately serves  the  human  needs  of  the  times,  it  is  nor- 
mal, regardless  of  how  it  compares  statistically  with 
other  times.  There  are  very  definite  signs  that  com- 
merce and  industry  in  America  are  regaining  their 
ability  to  render  more  satisfactory  service  to  the  nation. 
Upon  our  prudence  depends  the  full  realization  of  this 
movement. 


9 


Passing  from  technical  considerations,  I would  lay 
emphasis  on  the  human  element.  Never  before  in  the 
history  of  the  world  has  there  been  such  a universal  and 
profound  change  in  human  conduct  as  we  have  seen  in 
the  period  since  the  World  War  began.  Never  before 
has  human  conduct  produced  such  variations  in  business 
away  from  what  we  are  accustomed  to  consider  a normal 
course.  We  are  beginning  to  realize  this  more  fully 
today,  over  two  years  after  the  termination  of  the  war, 
than  we  did  as  we  emerged  from  the  great  struggle.  Al- 
though we  knew  then  that  the  world  had  been  through 
an  ordeal  without  precedent  in  human  affairs,  and  al- 
though we  realized  the  great  disorganization  in  indus- 
try, business  and  finance,  we  did  not  fully  appreciate 
how  great  had  been  the  disorganization  of  the  human 
element  in  the  world’s  economic  life. 

It  is  a question  of  the  personal  attitude  of  man 
toward  his  job.  Looking  at  this  in  a large  way,  we 
see  nations  still  struggling  and  fighting  one  with  an- 
other. Within  nations  we  see  labor  still  creating  tur- 
moil, while  the  attitude  of  employers  is  not  always  what 
it  should  be.  Business  stability  and  a new  normal  for 
the  conduct  of  the  world’s  economic  life  cannot  be  found 
while  these  conditions  persist.  Human  nature  has  set 
free  great  forces  which  must  be  brought  under  control 
before  business  can  again  be  on  a sound  basis. 

Too  many  people  today  hope  and  expect  something 
will  be  done  for  them,  although  their  interests  would 
best  be  served  by  their  doing  a full  day’s  work  for  their 
pay.  There  is  an  effort  on  the  part  of  workers  to  retain 
the  advantages  won  during  the  abnormal  war  period  of 
shorter  hours,  higher  pay  and  easy  work,  regardless  of 
the  present  lack  of  an  economic  basis  for  the  continu- 

10 


ance  of  such  conditions.  The  fundamental  principle  of 
enlightened  labor  leadership  today  should  be  to  incul- 
cate a return  to  the  doctrine  of  an  honest  day’s  work  for 
an  honest  day’s  pay.  Inflated  wages  and  the  non-com- 
petitive conditions  of  the  war  and  the  later  boom  period 
produced  inefficiency  and  irresponsibility. 

Stabilization  of  Wages 

It  is  essential  to  the  welfare  of  labor  itself  to  banish 
this  attitude,  not  because  individual  efficiency  and  a full 
return  of  value  received  in  the  pay  envelope  mean  bigger 
profits  for  the  employer,  but  because  they  mean  better 
times  for  the  workers  themselves.  Workers  cannot,  in 
the  long  run,  consume  more  than  they  produce.  If  new 
houses  are  not  built,  labor  cannot  have  enough  homes 
to  live  in;  if  cloth  is  not  woven,  labor  cannot  have  clothes 
to  wear.  Such  activities  can  be  maintained  only  if  the 
element  of  personal  efficiency  and  productivity  makes 
wages  occupy  the  proper  ratio  in  production  costs.  If 
wages  are  too  high  in  relation  to  the  exchange  value  of 
the  product,  wages  must  come  down,  for  no  wage  can  be 
permanently  maintained  at  a point  above  what  it  is 
worth  measured  in  terms  of  other  products. 

Further,  employers  must  not  seek  to  drive  wages 
below  their  true  value  thus  measured.  There  is  this 
reciprocal  personal  responsibility  involved  in  the  rela- 
tion of  workers  and  employers — on  the  one  hand  to  ren- 
der efficient  service  for  every  dollar  demanded,  on  the 
other  to  render  over  to  labor  every  dollar  earned. 

I would  refer  briefly  to  another  phase  of  the  present 
situation.  Over  a long  period  of  years  there  have  grown 
up  accepted  standards  of  commercial  conduct  that  ma- 


il 


terially  weakened  the  business  structure.  Notable 
among  these  are  customs  that  made  easy  a large  per- 
centage of  the  cancellations  that  characterized  the  busi- 
ness reaction.  The  responsibility  for  this  does  not  rest 
entirely  on  the  buyer.  Usage  in  many  lines  of  business 
contemplated  that  a contract  of  purchase  was  not  bind- 
ing if  it  became  inexpedient  to  keep  it.  It  will  materially 
strengthen  the  business  structure  if  it  becomes  the  tra- 
dition of  trade  that  contracts  are  made  to  stand  by.  A 
more  serious  token  of  moral  weakness  in  our  business 
structure  was  the  cancellation  of  contracts  which  con- 
stituted an  absolute  breach  of  faith,  contracts  that  were 
binding  both  in  the  letter  of  the  bond  and  in  the  custom 
of  the  trade.  Business  is  seriously  retarded  today  by 
the  unwillingness  of  manufacturers  to  accept  orders  for 
distant  deliveries  through  fear  of  cancellations  should 
a further  drop  in  prices  come.  The  temper  of  business, 
and  the  accepted  methods  of  conducting  it,  should  be 
such  that  we  shall  never  again  witness  such  a wholesale 
repudiation  of  business  obligations. 

Personal  Responsibility  in  Business 

There  are  elements  of  personal  responsibility  in 
banking  relations  also  that  must  be  maintained  on  high 
standards.  It  is  not  sufficient  for  a banker  in  loaning 
money  merely  to  consider  whether  it  is  going  to  be  safe 
and  profitable  for  his  own  bank.  Neither  is  it  sufficient 
to  add  to  this  the  consideration  as  to  whether  it  is  going 
to  help  his  customer  make  a profit.  He  must  consider 
these  things.  But  he  must  also  consider  whether,  from 
the  point  of  view  of  public  interest,  it  is  a good  and  con- 
structive thing  to  do.  He  must  consider  whether  so- 

12 


ciety  needs  that  activity  or  whether  the  general  situa- 
tion will  be  better  off  without  it.  The  times  are  still  too 
serious  for  wasted  effort,  for  unproductive  enterprise  or 
for  irresponsible  ventures.  It  is  only  through  the  ele- 
ment of  personal  contact  between  banker  and  business 
man,  only  through  their  mutual  recognition  of  their  per- 
sonal responsibility  to  society,  that  the  high  business 
needs  of  the  day  can  be  met. 

Again,  there  is  personal  responsibility  in  the  admin- 
istrative phases  of  business.  War  and  post-war  condi- 
tions did  much  to  deteriorate  the  personal  attitude  here. 
The  boom  period  that  characterized  the  aftermath  of 
the  war  was  one  not  only  of  personal  extravagance  but 
also  of  business  extravagance.  Large  profits  begot  a 
laxity  of  methods.  War  taxes  caused  a tendency  toward 
carelessness  in  expense  on  the  theory  that  a large  part 
of  it  would  come  out  of  the  government.  Competition 
for  labor  made  employers  willing  to  accept  lower  stand- 
ards of  efficiency.  These  things  must  be  done  away 
with. 

The  maintenance  of  personal  factors  of  strength  and 
the  correction  of  elements  of  weakness  in  the  conduct 
of  business  is  as  important  as  the  maintenance  of  sound 
credit,  currency,  and  banking  conditions.  These  cor- 
rections cannot  come  through  the  study  of  figures. 
They  must  come  from  building  up  a higher  con- 
sciousness of  personal  responsibilities.  There  must  be 
a stiffer  moral  fibre  in  business. 

In  addition  to  elements  of  weakness,  due  to  the  per- 
sonal attitude  in  business,  we  see  the  nations  rendering 
financial  stability  impossible  by  continuing  efforts  to 
maintain  the  military  advantages  won  in  the  war,  or  to 

13 


evade  the  just  penalties  thereof.  Never  has  the  moral 
responsibility  of  governments  been  greater.  Any  gov- 
ernment that  does  not  rise  to  its  full  obligation  to  put 
an  end  to  the  dissipation  of  the  world’s  resources  in 
wasteful  preparation  for  future  wars  is  not  discharging 
its  moral  responsibility.  Any  government  that  counte- 
nances privileges  to  any  class  as  against  another  class 
on  the  ground  of  social  justice  undermines  the  stability 
of  society.  Not  only  in  Soviet  Russia  do  we  see  some  of 
these  manifestations  of  unsettled  human  nature,  but 
also  in  some  of  the  more  stable  nations. 

These  are  some  of  the  threatening  signs  of  the  times, 
but  we  may  feel  confident  that  they  represent  some  of 
the  last  phases  of  the  world’s  difficulties.  There  are  in- 
dications that  sound  government  is  keeping  the  upper 
hand  and  that  Bolshevism  will  not  overthrow  the 
regime  of  law  and  order.  For  us  in  America  a particu- 
larly encouraging  circumstance  is  the  broad-minded, 
sound,  human  and  intelligent  way  in  which  the  present 
administration  is  attacking  the  problems  of  the  day. 

The  prime  test  of  the  future,  for  men  as  citizens,  and 
for  nations  as  members  of  world  society  will  be  the 
ability  to  conduct  the  affairs  of  life  on  the  highest  stand- 
ards of  personal  and  social  responsibility. 

The  Way  to  Normal  Times 

I have  laid  this  emphasis  on  the  human  aspects  of 
business  and  on  the  ethical  responsibilities  demanded, 
not  to  advocate  a more  rigid  moral  regime  for  the  world, 
but  because  of  the  sincere  conviction  that  it  points  to 
the  most  practical  pathway  out  of  the  business  and 
social  confusion  of  the  times. 


14 


A return  of  social  stability  rests  upon  recognition 
by  both  nations  and  individuals  that  reconstruction  can 
come  only  by  hard  work,  that  business  can  endure  only 
on  the  basis  of  a sincere  discharge  of  obligations, 
whether  they  be  in  the  form  of  executive  duties  or  in 
the  form  of  day’s  labor,  and  that  a high  sense  of  per- 
sonal responsibility  must  prevail  in  all  the  relations  of 
life. 

The  most  frequently  asked  question  of  the  day  is 
when  we  may  expect  a return  of  normal  business.  Fore- 
casts based  only  on  technical  business  considerations 
are  worth  little.  The  rebirth  of  normal  business  awaits 
a new  attitude  of  man  toward  his  job. 


15 


UNIVERSfTY  OF  ILLINOIS-URBANA 


mi 

llll 

3011 

20 

52 

47 

'977 

National  Bank 
of  Commerce 


in  New  York 


Capital,  Surplus 
& Undivided  Profits 
Over 

Fifty  five  Million  Dollars 


